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Friday August 19th, 2022

Sri Lanka’s CPC says petrol, diesel losses rise as LIOC hikes prices

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation is seeing larger losses as world oil prices continue to rise, officials said while a second distributor, Lanka India Oil Corporation has raised prices to help reduce credit funded losses and support the rupee.

“At the time when we asked for a price increase from the government on October 01, the price of one barrel of 92-Octane petrol in the international market was 85.80 US dollars. Diesel was 88.52 dollars, Ceylon Petroleum Corporation Chairman Sumith Wijesinghe told reporters.

“And from October 01 to October 22, the price of a barrel of Patrol has increased to 99.30 US dollars and Diesel to 97 US dollars. Because of the increase the Corporation is making a bigger loss than at the time we made the request.

In the first week of October CPC said it was losing 14.56 rupees from petrol after paying taxes and losing 31.46 rupees from diesel after paying taxes. Fuel is a key source of taxes for most government and Sri Lanka charges higher taxes from petrol than diesel.

Related Sri Lanka CPC seeks fuel price hike amid Powell Bubble, currency fall

“With the international price of fuel increasing in October, the loss from one litre of diesel is 38.45 rupees to the Ceylon Petroleum Corporation,” Wijesinghe said.

“And from petrol 92 it is a 23.19 rupee a litre loss. And LIOC said due to this price increase in the international market they have a loss of 20 rupees from one litre of petrol and 40 rupees from one litre of diesel. There is a loss for both Ceypetco and LIOC due to the price increase.”

Lanka IOC has raised the price of both petrol and diesel by 5 rupees a litre. As a result the demand for CPC fuel from customers will increase and so will the losses.

CPC however has a tax advantage compared to LIOC as crude coming to its refinery is taxed at a lower rate than refined products.

“We know the public will always go to the place with a lesser price. Because of that, with more people coming to Ceypetco stations, they have indirectly increase Ceypetco’s loss by increasing their prices.

“LIOC doesn’t have to inform the Ceypetco about their price increase. According to the agreement between them and the government they have to do business and supply a percentage of the fuel demand in the country.

“When they increase the price Ceypetco will have to bear some percentage of that market percentage as well.”

LIOC has about 10 to 15 percent of the fuel market in the country.

When CPC borrows from the banking system to fund losses, interest rates have to rise. However the central bank usually prints money to keep rates down, triggering a currency crises and forex reserve losses.

At the moment the central bank is targeting a 6.0 percent overnight rate with injections.

Sri Lanka is now in a severe currency crisis due to printing money to pay state worker salaries and keep rates down.

By raising prices, LIOC helps strengthen the rupee and keep the national economy stable. However if customers shift to CPC the effect is reduced.

When fuel is market-priced disposable incomes of fuel users reduce, and non-oil imports fall, keeping the external sector in balance.

“There is no decision to increase the prices at the moment,” Petroleum Minister Udaya Gammanpila said.

“We have asked for a relief from the ministry of finance, and we expect that relief. With the general public already taking a hit, we are trying to face this loss as long as we can.”

CPC has also borrows dollars from abroad to keep domestic prices down, in another cascading policy error that occurs after the central bank prints money to keep rates down.

Sri Lanka is now trying to borrow a total of 4.1 billion US dollars (3.6 billion dollars from Oman and 500 million dollars from India) after printing money which will add to the total external public sector debt.

Global oil prices are now rising as the US Fed prints money weakening the US dollar in the so-called Powell Bubble. Oil prices are now rising towards levels seen in the Greenspan-Bernanke bubble which burst in 2008.

The Fed is claiming that the oil prices is ‘transitory’ but classical economists have said that Fed chief Jerome Powell is delusional as money supply in the US is rocketing with healthy credit growth.

Related

Sri Lanka heading for uncertainty with low rate obsession: Bellwether

Sri Lanka’s currency fall has amplified the rupee price and losses of the petroleum utilities.

“When currencies fall and stock holding costs go up, credit will move up and more money will have to be printed even as people buy less goods,” EN’s Economic Columnist said in early 2021 warning the central bank against money printing to keep rates down.

“On top of that state energy utilities will see their costs rise. If prices are not adjusted more money and credit will go to those firms.

“In fact in Latin American pegs, energy utilities are a key driver of meltdowns.” (Colombo/Oct25/2021)

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Sri Lanka schedules 3-hour power cuts for Aug 20, 21: regulator

ECONOMYNEXT – Sri Lanka will impose power cuts of up to three hours on Saturday August 20 and Sunday August 21, Public Utilities Commission (PUCSL) Chairman Janaka Ratnayake said.

All areas (A, B, C, D, E, F, G, H, I, J, K, L, P, Q, R, S, T, U, V and W) will have power cuts of 1 hours and 40 minutes between 10.30 am and 06.00 pm and 1 hour 20 minutes from 06.00pm to 10.00 pm.

Click here for a detailed schedule.

The state-run Ceylon Electricity Board (CEB) said supply interruption time and restoration time will vary within 30 minutes as indicated above.

Sri Lanka’s daily scheduled power cuts that were reduced to one hour in July with power generation from hydro power plants contributing more than 50 percent to the main grid reducing thermal power plant use was extended to three hours last week due to a breakdown at the Norochcholai coal power plant.

According to officials, the breakdown happened in Unit 1 of Norochcholai which will take around two weeks to repair.

The Minister of Power & Energy said Unit 2 is undergoing scheduled maintenance work while Unit 3 will continue to operate. West Coast and other fuel power pPlants will be used to manage the supply, the ministry said. (Colombo/Aug02/2022)

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Sri Lanka guidance peg edges T-bond yield edge down

ECONOMYNEXT – Sri Lanka Central Bank’s guidance peg for interbank transactions edged down on Friday (19), while yields in Treasury bonds picked up slightly and in T-bill remain unquoted in dull trade, a day after the Central Bank announced the policy rates will remain stable, dealers said.

A bond maturing on 01. 06. 2025 closed at 27.95/28.05 percent on Friday, slightly up from 27.90/28.00 percent on Thursday.

No T-bills were quoted on Friday, dealers said.

Meanwhile Sri Lanka’s central bank announced a guidance peg for interbank transactions further weakened by three cents to 361.00 rupees against the US dollar on Friday from 360.97 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 368.00 and 370.00 for small transactions.  (Colombo/ Aug 19/2022)

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Sri Lanka records 10 new COVID-19 deaths in 48 hours as case numbers rise

ECONOMYNEXT –  Sri Lanka recorded 10 COVID-19 deaths in the 48 hours from August 17 to 19 taking the country’s pandemic death toll to 16,640, health ministry data showed.

Sri Lanka is experiencing a slight increase in COVID-19 cases with the relaxation of public health restrictions relating to face masks and public gatherings.

Health authorities said the situation will be monitored constantly and have asked the general public to continue to follow basic hygiene measures in order to control the spread of the virus again in the community.

In August alone 2,924 new cases were recorded in Sri Lanka, with 84 deaths attributed to the disease.

So far in 2022, from January onward, health authorities have identified 81,157 patients to date.

Epidemiology unit data showed that 874 patients are currently receiving treatment, out of which 716 are receiving home based care.

The spread of the virus has increased with the use of public transport rising after an easing of a fuel crisis.

Sri Lanka is also facing difficulties in securing essential medicine supplies for the health sector due to a forex shortage.

Health officials said if the number of COVID-19 patients rise to a level the health sector cannot manage,  with the added issues of fuel and medical shortages, the health system might collapse.

“It is the responsibility of us all. There is no use trying to forcibly control people. We all have the responsibility to reduce or stop the spread of the virus before it gets out of control. We have been living with it for the past two years,” Deputy Director General of Health Services Dr Hemantha Herath said. (Colombo/Aug19/2022)

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